FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended December 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from to .
--- ---
Commission File Number: 0-16195
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1214948
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation
or organization)
375 Saxonburg Boulevard 16056
Saxonburg, PA (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: 724-352-4455
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
At February 4, 2000, 6,369,606 shares of Common Stock,
no par value, of the registrant were outstanding.
1
II-VI INCORPORATED AND SUBSIDIARIES
-----------------------------------
INDEX
-----
Page No.
--------
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
-- December 31, 1999 and June 30, 1999. . . . . . . . . 3
Condensed Consolidated Statements of Earnings
-- Three and six months ended
December 31, 1999 and 1998. . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
- Six months ended December 31, 1999 and 1998 . . . . . 6
Notes to Condensed Consolidated Financial Statements . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk (no significant changes
since June 30, 1999)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . .13
2
PART 1 - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
--------------------
II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000)
December 31, June 30,
Assets 1999 1999
------------ --------
Current Assets
Cash and cash equivalents $ 5,883 $ 5,558
Accounts receivable - net 12,273 13,070
Inventories 11,200 9,096
Other current assets 1,861 1,289
------- -------
Total Current Assets 31,217 29,013
Property, Plant and Equipment, net 37,168 36,955
Other Assets 7,569 4,875
------- -------
$75,954 $70,843
======= =======
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 5,000 $ 4,082
Accounts payable 2,381 1,934
Accrued salaries, wages and bonuses 2,569 2,836
Income taxes payable 567 367
Accrued profit sharing contribution 360 580
Other current liabilities 946 1,581
Current portion of long-term debt 43 43
------- -------
Total Current Liabilities 11,866 11,423
Long-Term Debt--less current portion 2,882 2,549
Other Liabilities,
primarily deferred income taxes 2,747 2,378
Commitments & Contingencies - -
Shareholders' Equity
Preferred stock, no par value;
authorized - 5,000,000 shares;
unissued - -
Common stock, no par value;
authorized - 30,000,000 shares;
issued - 6,892,546 shares at
December 31, 1999; 6,875,766
shares at June 30, 1999 18,877 18,746
Accumulated other comprehensive income 698 272
Retained earnings 40,794 37,385
------- -------
60,369 56,403
Less treasury stock, at cost
- - 534,440 shares at
December 31, 1999 and June 30, 1999 1,910 1,910
------- -------
58,459 54,493
------- -------
$75,954 $70,843
======= =======
- -See notes to condensed consolidated financial statements.
3
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
Three Months Ended
December 31,
1999 1998
Revenues -------- --------
Net sales:
Domestic $ 8,256 $ 8,059
International 8,397 6,752
-------- --------
16,653 14,811
Contract research and development 221 399
-------- --------
16,874 15,210
-------- --------
Costs, Expenses & Other Income
Cost of goods sold 9,476 9,077
Contract research and development 168 305
Internal research and development 602 574
Selling, general and administrative 4,208 3,436
Interest expense 94 154
Other income - net (59) (261)
-------- --------
14,489 13,285
-------- --------
Earnings Before Income Taxes 2,385 1,925
Income Taxes 715 623
-------- --------
Net Earnings $ 1,670 $ 1,302
======== ========
Basic Earnings Per Share $ 0.26 $ 0.21
======== ========
Diluted Earnings Per Share $ 0.26 $ 0.20
======== ========
- -See notes to condensed consolidated financial statements.
4
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
Six Months Ended
December 31,
1999 1998
Revenues -------- --------
Net sales:
Domestic $ 16,792 $ 15,724
International 15,983 12,581
-------- --------
32,775 28,305
Contract research and development 297 698
-------- --------
33,072 29,003
-------- --------
Costs, Expenses & Other Income
Cost of goods sold 18,704 18,046
Contract research and development 226 540
Internal research and development 1,225 1,152
Selling, general and administrative 8,014 6,443
Interest expense 179 280
Other income - net (131) (280)
-------- --------
28,217 26,181
-------- --------
Earnings Before Income Taxes 4,855 2,822
Income Taxes 1,446 891
-------- --------
Net Earnings $ 3,409 $ 1,931
======== ========
Basic Earnings Per Share $ 0.54 $ 0.30
======== ========
Diluted Earnings Per Share $ 0.52 $ 0.30
======== ========
- -See notes to condensed consolidated financial statements.
5
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
Six Months Ended
December 31,
1999 1998
-------- --------
Cash Flows from Operating Activities
Net earnings $3,409 $1,931
Adjustments to reconcile
net earnings to net cash
provided by operating activities:
Depreciation and amortization 2,790 2,421
Gain on foreign currency transactions (104) (574)
Net loss on disposal or writedown
of property, plant and equipment - 200
Deferred income taxes (4) -
Increase (decrease) in cash
from changes in:
Accounts receivable 210 1,415
Inventories (1,912) 805
Accounts payable 366 (1,676)
Other operating net assets (743) (1,594)
-------- --------
Net cash provided by
operating activities 4,012 2,928
-------- --------
Cash Flows from Investing Activities
Additions to property, plant
and equipment (2,841) (2,955)
Investments in unconsolidated businesses (2,888) -
Disposals (additions) of other assets 750 (600)
-------- --------
Net cash used in investing activities (4,979) (3,555)
-------- --------
Cash Flows from Financing Activities
Proceeds on short-term borrowings, net 909 1,337
Payments on long-term borrowings (25) (26)
Proceeds from sale of common stock 71 105
Purchases of treasury stock - (1,148)
-------- --------
Net cash provided by financing activities 955 268
Effect of exchange rate changes
on cash and cash equivalents 337 358
-------- --------
Net increase (decrease) in cash
and cash equivalents 325 (1)
Cash and Cash Equivalents
at Beginning of Period 5,558 4,160
-------- --------
Cash and Cash Equivalents
at End of Period $5,883 $4,159
======== ========
- -See notes to condensed consolidated financial statements.
6
II-VI Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A - Basis of Presentation
---------------------
The consolidated financial statements for the three and six month
periods ended December 31, 1999 and 1998 are unaudited. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
for the periods presented have been included. These interim
statements should be read in conjunction with the audited
consolidated financial statements and footnotes thereto contained
in the Company's 1999 Annual Report to shareholders. The
consolidated results of operations for the three and six month
periods ended December 31, 1999 and 1998 are not necessarily
indicative of the results to be expected for the full year.
Certain reclassifications were made to the prior period
financial statements in order for them to be in conformity with
current period presentation.
Note B - Inventories ($000)
-------------------
The components of inventories are as follows:
December 31, June 30,
1999 1999
------------ --------
Raw materials $ 2,689 $ 3,014
Work in progress 5,098 3,731
Finished goods 3,413 2,351
------------ --------
$ 11,200 $ 9,096
============ ========
Note C - Property, Plant and Equipment ($000)
-------------------------------------
Property, plant and equipment (at cost) consist of the following:
December 31, June 30,
1999 1999
------------ --------
Land and land improvements $ 1,525 $ 1,501
Buildings and improvements 20,090 19,559
Machinery and equipment 42,954 40,758
------------ --------
64,569 61,818
Less accumulated depreciation 27,401 24,863
------------ --------
$37,168 $36,955
============ ========
7
II-VI Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued
Note D - Debt
----
On March 26, 1999, the Company entered into a $15.0 million
unsecured line of credit agreement with PNC Bank that expires
on March 25, 2000. This line of credit may be extended upon the
mutual agreement of the Company and PNC Bank for an additional
two years. The average interest rate in effect as of December
31, 1999 was 6.90%. As of December 31, 1999, the total
borrowings under this line of credit were $5.0 million. The
Company is subject to certain restrictive covenants under this
agreement.
Note E - Earnings Per Share
------------------
The following table sets forth the computation of earnings
per share for the periods indicated:
Three Months Ended Six Months Ended
December 31, December 31,
(000 except per share data)
1999 1998 1999 1998
- -------------------------------------------------------------
Net earnings $1,670 $1,302 $3,409 $1,931
Divided by:
Weighted average
shares 6,353 6,338 6,350 6,391
- -------------------------------------------------------------
Basic earnings
per share $0.26 $0.21 $0.54 $0.30
- -------------------------------------------------------------
Net earnings $1,670 $1,302 $3,409 $1,931
Divided by:
Weighted average
shares 6,353 6,338 6,350 6,391
Dilutive effect of
common stock
equivalents 192 122 176 139
- -------------------------------------------------------------
Diluted weighted
average common
shares 6,545 6,460 6,526 6,530
- -------------------------------------------------------------
Diluted earnings
per share $0.26 $0.20 $0.52 $0.30
- -------------------------------------------------------------
Note F - Other Comprehensive Income
--------------------------
During the quarter ended September 30, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" which requires the Company to report and
disclose a measure ("comprehensive income") of all changes in
shareholders' equity that result from transactions and other
economic events of the period other than transactions with
owners.
Accumulated other comprehensive income on the condensed
consolidated balance sheets consists of unrealized gains on
investments and foreign currency translation adjustments.
The components of comprehensive income were as follows for the
periods indicated ($000):
8
II-VI Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
- -------------------------------------------------------------
Net earnings $1,670 $1,302 $3,409 $1,931
Change in
unrealized (loss) (128) - 557 -
gain on investment
Foreign currency
translation
adjustments (104) (376) (131) (499)
- -------------------------------------------------------------
Comprehensive income $1,438 $926 $3,835 $1,432
- -------------------------------------------------------------
Note G - Segment Reporting
-----------------
Effective in fiscal 1999, the Company adopted Statement of
Financial Accounting standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" (SFAS No.
131), which requires the use of the 'management approach' model
for segment reporting.
The Company has two reportable segments: Optical Components,
which is an aggregation of the Company's infrared optics and
material products business and the Company's VLOC subsidiary
under the guidelines of SFAS No. 131, and Radiation Detectors.
The accounting policies of the segments are the same as those of
the Company. Substantially all of the Company's corporate
expenses are allocated to the segments. The Company evaluates
segment performance based upon reported segment profit or loss
from operations. Inter-segment sales and transfers are
insignificant.
The following table summarizes selected financial information of
the Company's operations by segment ($000's):
Three Months Ended December 31, 1999
--------------------------------------
Optical Radiation
Components Detectors Totals
- ----------------------------------------------------------------
Net revenues $15,668 $1,206 $16,874
Income (loss) from operations 2,953 (533) 2,420
Interest expense - - 94
Other income, net - - (59)
Earnings before income taxes - - 2,385
Segment assets 67,543 8,411 75,954
Three Months Ended December 31, 1998
--------------------------------------
Optical Radiation
Components Detectors Totals
- ----------------------------------------------------------------
Net revenues $13,883 $1,327 $15,210
Income (loss) from operations 2,180 (362) 1,818
Interest expense - - 154
Other income, net - - (261)
Earnings before income taxes - - 1,925
Segment assets 58,736 8,642 67,378
9
Six Months Ended December 31, 1999
--------------------------------------
Optical Radiation
Components Detectors Totals
- ----------------------------------------------------------------
Net revenues $30,509 $2,563 $33,072
Income (loss) from operations 5,808 (905) 4,903
Interest expense - - 179
Other income, net - - (131)
Earnings before income taxes - - 4,855
Segment assets 67,543 8,411 75,954
Six Months Ended December 31, 1998
--------------------------------------
Optical Radiation
Components Detectors Totals
- ----------------------------------------------------------------
Net revenues $26,382 $2,621 $29,003
Income (loss) from operations 3,470 (648) 2,822
Interest expense - - 280
Other income, net - - (280)
Earnings before income taxes - - 2,822
Segment assets 58,736 8,642 67,378
Note H - Investment in Laser Power Corporation
-------------------------------------
On September 21, 1999, the Company purchased 1,250,000 shares of
Laser Power Corporation common stock for a total purchase price
of approximately $2.8 million. Based on information available to
the Company, this purchase represents approximately 14.5% of the
outstanding common stock of Laser Power Corporation. Laser Power
Corporation is a competitor of the Company which produces
infrared and CO2 laser optics.
This investment is being accounted for under the cost method of
accounting. This investment is included in "Other Assets" in the
accompanying condensed consolidated balance sheet as of December
31, 1999.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Net earnings for the second quarter of fiscal 2000 were
$1,670,000 ($0.26 per share-diluted) on revenues of $16,874,000.
This compares to net earnings of $1,302,000 ($0.20 per share-
diluted) on revenues of $15,210,000 in the second quarter of
fiscal 1999. For the six months ended December 31, 1999, net
earnings were $3,409,000 ($0.52 per share-diluted) on revenues of
$33,072,000. This compares with net earnings of $1,931,000
($0.30 per share-diluted) on revenues of $29,003,000 for the same
period last fiscal year.
Order bookings for the second quarter of fiscal 2000 were
$20,024,000 compared to $16,492,000 for the same period last
fiscal year, an increase of 21%. Bookings for contract research
and development for the second quarter of fiscal year 2000 were
$448,000 compared to $241,000 for the same period last fiscal
year. Excluding these long-term research and development
contract bookings, manufacturing bookings increased 20%. For the
quarter, bookings for laser optics and component products
increased approximately 20% and bookings for the eV PRODUCTS
division increased over 75%.
Order bookings for the six months ended December 31, 1999 were
$36,856,000 compared to $29,304,000 for the same period last
fiscal year, an increase of 26%. Bookings for contract research
and development for the six months ended December 31, 1999 were
$448,000 compared to $241,000 for the same period last fiscal
year. Excluding these long-term research and development
contract bookings, manufacturing bookings increased 25%. For the
year-to-date, bookings for laser optics and component products
increased approximately 25% and bookings for the eV PRODUCTS
division increased approximately 15%.
Revenues for the second quarter of fiscal 2000 increased 11% to
$16,874,000 compared to $15,210,000 for the same period last
fiscal year. For the six months ended December 31, 1999, revenues
increased 14% to $33,072,000 from $29,003,000 for the same period
last fiscal year. For the quarter, revenues from laser optics
and products increased by approximately 15% while revenues from
the eV PRODUCTS division decreased by approximately 10%. For the
year-to-date, revenues from laser optics and products increased
by approximately 15% while revenues from the eV PRODUCTS division
were consistent with the prior period.
Manufacturing gross margin for the second quarter of fiscal 2000
was $7,177,000 or 43% of revenues compared to $5,734,000 or 39%
of revenues for the same period last fiscal year. For the six
months ended December 31, 1999, manufacturing gross margin was
$14,071,000 or 43% of revenues compared to $10,259,000 or 36% of
revenues for the same period last fiscal year. The higher gross
margin percentage for the quarter and year-to-date reflects
productivity gains and cost control programs, lower per unit cost
associated with higher production volume for laser optics and
component products and a strengthened Japanese Yen.
Company-funded internal research and development expenses for the
second quarter of fiscal 2000 were $602,000 or 4% of revenues
compared to $574,000 or 4% of revenues for the same period last
fiscal year. For the six months ended December 31, 1999, internal
research and development expenses were $1,225,000 or 4% of
revenues compared to $1,152,000 or 4% of revenues for the same
period last fiscal year. The increased expenses for the quarter
and year-to-date reflect projects associated with nuclear
radiation detector development and infrared optics and materials
development.
Selling, general and administrative expenses for the second
quarter of fiscal 2000 were $4,208,000 or 25% of revenues
compared to $3,436,000 or 23% of revenues for the same period
last fiscal year. For the six months ended December 31, 1999,
selling, general and administrative expenses were $8,014,000 or
24% of revenues compared to $6,443,000 or 22% of revenues for the
same period last fiscal year. The quarter and year-to-date dollar
and percentage increases are attributable to increased
compensation expense associated with the Company's worldwide
profit-driven bonus programs and increased professional service
expenses.
Interest expense for the second quarter of fiscal 2000 was
$94,000 compared to $154,000 for the same period last fiscal year.
For the six months ended December 31, 1999, interest expense was
$179,000 compared to $280,000 for the same
11
period last fiscal year. The quarter and year-to-date decreases
in interest expense are the direct result of decreased
average borrowings.
For fiscal 2000, the Company's year-to-date effective income tax
rate is 30% compared to an effective income tax rate of 32% for
the same period last fiscal year. The decrease in the effective
income tax rate is partially attributable to a change in the
level of profit generated by the Company's foreign subsidiaries.
Liquidity and Capital Resources
- -------------------------------
Cash increased during the first six months of fiscal 2000 by
$325,000 primarily due to net earnings before depreciation and
amortization of $6,199,000 and borrowings on the Company's line
of credit. These items were offset by an increase in inventory,
payment of compensation costs relating to the Company's fiscal
1999 worldwide profit-driven bonus programs, capital expenditures
and the purchase of 1,250,000 shares of Laser Power Corporation
common stock. The Company generated $4,012,000 in cash from
operations during the first six months of fiscal 2000.
The Company believes internally generated funds, existing cash
reserves and available borrowing capacity will be sufficient to
fund its working capital needs, capital expenditures and
scheduled debt payments for fiscal 2000.
This Management's Discussion and Analysis contains forward
looking statements as defined by Section 21E of the Securities
Exchange Act of 1934, as amended, including the statements
regarding the Company's ability to fund future working capital
needs, capital expenditures and scheduled debt payments and the
Company's plan to address the Year 2000 issue. Forward-looking
statements are also identified by words such as "expects,"
"anticipates," "intends," "plans," "projects" or similar
expressions.
Actual results could materially differ from such statements if
worldwide economic conditions change, competitive conditions
intensify, and/or technology problems emerge. There are
additional risk factors that could affect the Company's business,
results of operations or financial condition. Investors are
encouraged to review the risk factors set forth in the Company's
1999 Form 10-K as filed with the Securities and Exchange
Commission on September 28, 1999.
Other Matters
- -------------
The Company experienced no material problems with its information
and non-information systems, or those of its vendors, customers
or financial institutions, as a result of the date change to the
Year 2000. The Company continues to monitor for unexpected issues
that could possibly still develop. The year 2000 problem has many
aspects and potential consequences, some of which are not
reasonably foreseeable, and there can be no assurance that
unforeseen consequences will not arise.
To date, the Company has spent approximately $170,000 on the Year
2000 issue and believes that the remaining potential cost related
to the Year 2000 issue will be insignificant.
12
PART II - OTHER INFORMATION
---------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
- ------ ---------------------------------
(a) Exhibits.
27.01 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K.
None.
13
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
II-VI INCORPORATED
(Registrant)
Date: February 14, 2000 By: /s/ Carl J. Johnson
Carl J. Johnson
Chairman and Chief
Executive Officer
Date: February 14, 2000 By: /s/ James Martinelli
James Martinelli
Treasurer & Chief
Financial Officer
14
EXHIBIT INDEX
-------------
Exhibit No.
- -----------
27.01 Financial Data Schedule . . . . . . . .Filed herewith.
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-START> OCT-01-1999 JUL-01-1999
<PERIOD-END> DEC-31-1999 DEC-31-1999
<CASH> 5,883 5,883
<SECURITIES> 0 0
<RECEIVABLES> 12,765 12,765
<ALLOWANCES> 492 492
<INVENTORY> 11,200 11,200
<CURRENT-ASSETS> 31,217 31,217
<PP&E> 64,569 64,569
<DEPRECIATION> 27,401 27,401
<TOTAL-ASSETS> 75,954 75,954
<CURRENT-LIABILITIES> 11,866 11,866
<BONDS> 2,882 2,882
0 0
0 0
<COMMON> 18,877 18,877
<OTHER-SE> 39,582 39,582
<TOTAL-LIABILITY-AND-EQUITY> 75,954 75,954
<SALES> 16,874 33,072
<TOTAL-REVENUES> 16,874 33,072
<CGS> 9,644 18,930
<TOTAL-COSTS> 9,644 18,930
<OTHER-EXPENSES> 4,751 9,108
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 94 179
<INCOME-PRETAX> 2,385 4,855
<INCOME-TAX> 715 1,446
<INCOME-CONTINUING> 1,670 3,409
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,670 3,409
<EPS-BASIC> 0.26 0.54
<EPS-DILUTED> 0.26 0.52
</TABLE>
